BRUSSELS: The European Central Bank (ECB) must retain full optionality on interest rates because uncertainty over the growth and inflation outlook remains elevated, according to Governing Council member Joachim Nagel.
“Since crucial factors can change quickly in the current environment, we are well advised to remain flexible,” the Bundesbank president said yesterday. “This means that pre-determining the future – neither a further interest rate cut nor a pause in monetary policy – is not sensible.”
Speaking at the Frankfurt Euro Finance Summit, Nagel said that recent data and the ECB’s projections signal “mission accomplished” on inflation. Even so, there’s no reason for complacency, he added.
“It is important to keep our eyes and ears open for risks to price stability,” Nagel said.
“This is also true in light of current developments in the Middle East,” he added, referring to ongoing hostilities between Israel and Iran.
After 200 basis points of easing in a year, officials are weighing whether borrowing costs have already reached their final destination in the cycle or need to be lowered further.
The key deposit rate currently stands at 2%, a level broadly seen as neutral for economic activity.
President Christine Lagarde has said that cuts are coming to an end as the ECB is now “in a good position” to deal with prevailing uncertainties.
Some policymakers recently suggested that “fine-tuning” may be needed. — Bloomberg
